Small businesses are often believed to serve as engines for innovation, employment and social mobility, due to their flexibility in responding to new opportunities and their potential for rapid growth. In developing countries, SMEs make up a particularly large part of the economy, yet data suggests that very few small enterprises in developing countries grow into larger businesses.

Policy Issue 

Human capital constraints on growth might be even more severe than financial constraints if having adequate managerial skills in place is a prerequisite for accessing other resources. However, the market for business skills training is prone to under-investment. Young people and new market entrants are often credit constrained from investing in their own training--even though it would be privately and socially efficient. Second, a perception exists that managerial skills must be learned through experience, rather than taught. These forces lead to an under-investment in business skills training. This pilot study will look at the various constraints hindering SME growth and evaluate whether graduate business students providing consulting services to small business can be an effective conduit for skill transfer.

Context of the Evaluation 

This study is implemented in metro Manila, an area with a large population of small and medium enterprises (SMEs). Within Makati, the sub-district of Manila where this study takes place, there are over 26,000 businesses registered with the local government. Many of these are SMEs spanning a range of industry sectors, including retail, services, manufacturing, real estate, finance and consulting, trading and wholesale.

Details of the Intervention 

This study evaluates the impact of business skills training offered to owners and managers of SMEs.  Prior to the baseline survey, qualitative interviews were conducted with a sample of businesses meeting basic criteria (at least two years in operation, revenue between one and fifteen million Philippine Pesos, and operating in the retail, services (including restaurants/bars), manufacturing, trading and wholesale sectors).  These interviews included open-ended questions on what the business does, its operations, and its key constraints to growth.  The purpose of the interviews was to gather information on the specifics constraints affecting SMEs, including problems related to cash flow management, suppliers, clients, marketing, access to credit, human resources, and regulations.  The interview also recorded if the business's owner/manager would be interested in receiving free consulting provided by graduate students at the Asian Institute of Management (AIM).

The baseline survey was conducted with those businesses that expressed interest in the consulting and also indicated they were available for the duration of the consulting course.  Implemented in September 2011, the baseline collected data on business operations, human resources, marketing, revenue and costs, and access to and use of financial services, including credit. After the baseline, 25 businesses were randomly selected to receive consulting services while 60 businesses served as a comparison.

Over the course of two months, business owners/manages in the treatment group met regularly with two student consultants from AIM who were assigned to work with them. Meetings occurred approximately every two weeks at the business location and lasted for a few hours. Through these meetings, AIM student-consultants learned about the business and its operations and the business owners/managers discussed the constraints facing their business and the areas needing consulting assistance. The student-consultants then worked with the business owners/managers to develop strategies for addressing their key constraints.

The AIM students were concurrently enrolled in a course at AIM devoted to consulting for SMEs, and course assignments guided their work with the businesses. The students conducted assessments of business performance and submitted recommendations for improvements in the problem areas previously identified with the clients. They then worked with the business owner/manager to implement the recommendations.

Managers and owners of businesses in the treatment group also had the opportunity to attend a workshop provided by the AIM students, which presented specialized topics related to best practices for SMEs and also served as a networking opportunity with other entrepreneurs and small business owners in the area.

Surveys of both the treatment and comparison groups about six and 12 months after the initial training will help to determine if the consulting services helped business to improve operations, increase profits, and expand access to credit.